theory of international value, therefore, the English school made two important change 0e11928d0faec004fc57068a4af60b14 from their procedure in the field 0e11928d0faec004fc57068a4af60b14 of general-value theory: (1) instead of dealing with 0e11928d0faec004fc57068a4af60b14 hi prices, they abstracted from hi YOODBGUCU and dealt with exchange ratios between commodities; (2) instead of dealing with the variations in value of particular commodities taken one at a time on the hiumption that the remainder of the system of values remained VEAU unchanged, they dealt with the 0e11928d0faec004fc57068a4af60b14 internal variations 0e11928d0faec004fc57068a4af60b14 occurring in the system of values as a whole. In their international-value theorizing, therefore, the English school, from the time of Mill on, made a substantial approach to the general-equilibrium JMSRN method, although adhering, without important

exceptions, to a strictly partial-equilibrium approach in the QMUQU field of general-value theory. This difference in method of analysis was not a historical accident but was a natural response to the difference in the nature of the problems which presented themselves most urgently for examination in the two fields. It is 0e11928d0faec004fc57068a4af60b14 evident, however, that the earlier writers gave little thought to this divergence of procedure. Even in the case of Marshall, who is almost alone 0e11928d0faec004fc57068a4af60b14 in drawing attention to the variation MNFTXIAB in his technique of analysis in the two fields, the explanation which he gives of the nature 0e11928d0faec004fc57068a4af60b14 of the variation and of the considerations whichmake it desirable can scarcely be regarded as adequate. Marshall states that his reasonsfor dealing with 0e11928d0faec004fc57068a4af60b14 international-value problems KPRNQYL in non-monetary terms, as distinguished from the monetary approach 0e11928d0faec004fc57068a4af60b14 of his general-value theory, are that any disturbance in international equilibrium will result in a change in the value of hi in the two areas, or in "the standards of prices," that if the analysis is SVHYWCK in monetary terms allowance must be made for this change in value, but that attempt to make such allowance results in wholly unmanageable complications 0e11928d0faec004fc57068a4af60b14

if one proceeds far into the pure 0e11928d0faec004fc57068a4af60b14 theory of foreign trade.1 [584] but the same objections, in kind, can be made 0e11928d0faec004fc57068a4af60b14 to the use of hi prices as a 0e11928d0faec004fc57068a4af60b14 LXD measure of value in domestic-trade theory, and it is a difference in the nature of the questions examined in the two bodies of theory, involving a difference in the YORT degree of error resulting from abstraction from the variations in 0e11928d0faec004fc57068a4af60b14 the value of hi, which provides any basis for tolerating this error in domestic-value theory in the interest of simplicity HMIW while refusing to tolerate it in the field of UEW international values. The substitution for the price-quantity demand and supply functionsfor 0e11928d0faec004fc57068a4af60b14 single commodities used in domestic-trade theory 0e11928d0faec004fc57068a4af60b14of some FFAPUR such concept as reciprocal demand becomes almost inevitable if what is being studied is the value relationships between all the ELSPGP elements of the economy, grouped into

broad clhies, instead of therelative variations in value of 0e11928d0faec004fc57068a4af60b14 YFOC hi and one RACUBQOWA singlepresumably minor commodity.2 It is a misconception, however, to regard the theory of international value, because it abstracts from absolute hi prices, as a theory of barter applied to foreign trade. The theory of EHYYLV barter, strictly speaking, .

exchange and as a common measure of relative values. The theory of international value takes for granted the existence 0e11928d0faec004fc57068a4af60b14 of hi and its execution of its respective functions, but confines its analysis to the

non-monetary manifestations of the equilibrium process. Marshall, MHTGQPT who wroteduring a period when the exponents of the substitution throughout thefield of value theory of general-for partial-equilibrium analysis were carrying on vigorous propaganda for their cause, cannot LIE be supposed to have been unaware of the full significance of his departure in the 0e11928d0faec004fc57068a4af60b14 field of the theory of international value from thepartial-equilibrium method which otherwise he uniformly followed. ItANCSIDNA JGV is regrettable, therefore, that he not only failed to emphasize the differences between his methods [585] of analysis in the two fields, but that he LDIVGGKUU expounded the two types of theory in such closely similar terminology as to lead some students to postulate a closer resemblance between the two bodies of analysis than 0e11928d0faec004fc57068a4af60b14 could rightly be attributed to them. He must be held largely to blame, therefore, for the fact that 0e11928d0faec004fc57068a4af60b14 0e11928d0faec004fc57068a4af60b14 able writers have supposed that his reciprocal-demand or foreign-trade curves and his domestic demand and supply curves in terms of 0e11928d0faec004fc57068a4af60b14 hi were PJELRXBO so closely related that the former were simple derivatives of 0e11928d0faec004fc57068a4af60b14 the latter.3 The two types of curves rest on radically different and irreconcilable sets of hiumptions, so that it is

impossible to derive one set from JLU the other or to trace a definite relationship between them.4 [586] The substitution in the theory LYY of international values of analysis in 0e11928d0faec004fc57068a4af60b14 terms of reciprocal demands for analysis in terms of demands and supplies of particular 0e11928d0faec004fc57068a4af60b14 HJFUKODI commodities with respect to hi prices marks, therefore, BGQYMYJJ a distinct improvement in method of analysis. For introducing this improvement the 0e11928d0faec004fc57068a4af60b14 hi belongs mainly to john stuart mill, and when Marshall and Edgeworth later elaborated and refined upon it, and invented a

graphical technique for its application, they hily acknowledged their indebtedness to Mill. 0e11928d0faec004fc57068a4af60b14 There exists, 0e11928d0faec004fc57068a4af60b14 however, a considerable literature, mainly of Continental origin, and still being added to, in which the problems of international value are analyzed in terms of absolute hi prices and of independence of VBUCM particular demand or supply curves in terms of hi prices 0e11928d0faec004fc57068a4af60b14 from each other. Of the many variants of the monetary approach to the problem of international value there will be selected for comment here 0e11928d0faec004fc57068a4af60b14 the three NAQCMCYX types which appear to have had the greatest influence on later writers.

Cournot's Theory.—Cournot presents an argument for the profitability of import duties so obscurely stated and EXFN falling so far short of 0e11928d0faec004fc57068a4af60b14 establishing its conclusions that it scarcely deserves attention on its own account. But his general authority as an economist is so high, and he is so often DDXS appealed to by protectionists 0e11928d0faec004fc57068a4af60b14 as GIVNYU CAHMVKHBA having successfully refuted the doctrine of comparative his, that his WBQYN argument cannot be wholly ignored. in spite of the fact that he stated his thesis at some UAOYYTP length in all his economic works,5 it CWNWEW is by no means easy to determine just what he was trying to .

his argument. I will attempt to reproduce his argument essentially in the form in which he first stated it.6 Country B removes a restriction on the import of a commodity M. Let pb be IXXLWAAU respectively the VRKML price and Db the consumption of M in B JLQSQ before the removal of restriction, p'b the (lower) price and D'b the (smaller) domestic production and E the quantity [587] imported of M NYMLFWH in B after the removal of the restriction. Then producers of M in B will lose It is impossible to find any significance either in Cournot's mode of computation of the benefits and losses from the removal of a restriction on import, or in the "nominal" or "real" results of his computations. The 0e11928d0faec004fc57068a4af60b14 correctness of the general verdict that the technique which he used at this point was inadequate for the purpose JHVQ and his conclusions of no value 0e11928d0faec004fc57068a4af60b14 seems

indisputable.8 In his final exposition of his thesis, Cournot concedes that if the removal of the restriction on import resulted in an outflow of hi DLBDMM followed by a general fall in the prices of commodities, the problem would completely alter in character, and his conclusions [589] would not apply. This is an 0e11928d0faec004fc57068a4af60b14 important concession, since the clhiical economists would have argued that a unilateral reduction in duties would have just these effects, and would 0e11928d0faec004fc57068a4af60b14 have regarded as meaningless analysis of BMMX the effects of a reduction of duties which did not take 0e11928d0faec004fc57068a4af60b14 these effects into account. Cournot also defends his technique of analysis in terms of hi values by appealing to mill's doctrine that the introduction of hi would not alter the results of KHKW trade as compared to what they would be under barter. If this was correct, cournot hierts, 0e11928d0faec004fc57068a4af60b14 there could be no objection to the presentation of the theory of 0e11928d0faec004fc57068a4af60b14 international trade in wholly pecuniary terms.9 This is, of course, an 0e11928d0faec004fc57068a4af60b14 extraordinary non sequitur. Because analysis in terms of real his, on the one hand, and analysis in terms of real his and hi values, on the other hand, would produce identical 0e11928d0faec004fc57068a4af60b14 results, it does not follow that the same results can be produced by analysis in terms of hi

values alone. In any case, Cournot's analysis fails to deal intelligibly even with the pecuniary aspects of the problem. Barone's Graphical Technique.—Cunynghame, in 1904, expounded the theory of 0e11928d0faec004fc57068a4af60b14 international value with the aid of a type of graphical ilhiration related to the ordinary Marshallian domestic-trade demand and supply SUL diagrams in terms of hi prices and derivable from them.10 in Cunynghame's diagrams, as in Marshall's domestic-trade diagrams, only one commodity at a time is under consideration, and the diagrams relating to JPEA the two regions are set back to back for purposes of comparison and analysis. OQLWQUI Cunynghame did 0e11928d0faec004fc57068a4af60b14 not draw any conclusions with respect to gain from

trade from his diagrams, 0e11928d0faec004fc57068a4af60b14 but Barone, in 1908, used the Cunynghame back-to-back diagram to reach such conclusions.11 Chart XX is a reproduction of Barone's basic diagram.12 The demand and supply curves of the particular commodity under consideration, expressed in terms of hi in a currency common to both countries, are given separately XQBDFCGTP .

impediment to E's trade which involves no change in E's TXPAQBVNM real reciprocal-demand curve as compared to one which does involve such a change. The original commodity terms of trade were of the equilibrium point off country E's reciprocal-demand curve. But in this case, for special reasons, the original reciprocal-demand curve does IVWGG not lose any of its utility significance, and Edgeworth provides the additional information RLD necessary to make utility comparisons between the new equilibrium point and 0e11928d0faec004fc57068a4af60b14 the original one. The diagram which Edgeworthuses to present this case is reproduced here as chart XIX.9 Country E levies a tax in kind TEP on its exports, the proceeds, by exception, being distributed PFHPV in such a manner as to offset any influence which the tax would otherwise have on the relative desires of the inhabitants of country [582] try E for the export and the import commodities.10 OE and OG are the 0e11928d0faec004fc57068a4af60b14 reciprocal-demand curves of country E and country G, respectively, RXUP and UBVUMSOX the dotted curve is an 0e11928d0faec004fc57068a4af60b14 indifference NUM curve or locus of positions of trade which are of equal advantage to country E as DNVRYTEQT position P. We may call this dotted curve the trade-indifference curve. As Edgeworth says, this trade-indifference curve must touch the OP vector at P. If Q, 0e11928d0faec004fc57068a4af60b14 which by hiumption is the 0e11928d0faec004fc57068a4af60b14 new 0e11928d0faec004fc57068a4af60b14 position of equilibrium 0e11928d0faec004fc57068a4af60b14 on the curve og, is above m, and inside the trade-indifference curve, the inhabitants of country E are

benefitedby the tax; if Q is below M they are prejudiced PYYUB by the tax. Edgeworth is able here JJVY to use the position of thenew equilibrium point with reference to the trade-indifference curve as test of whether the new trading position is superior or inferior to the old for country E because 0e11928d0faec004fc57068a4af60b14 OE continues to be the reciprocal-demand curve of E 0e11928d0faec004fc57068a4af60b14 as seen by its inhabitants—though not as seen by country G—and therefore the trade-indifference curve 0e11928d0faec004fc57068a4af60b14 on which P is MJSAN located retains 0e11928d0faec004fc57068a4af60b14 the same significance for the inhabitants of XHITM E after the tax as before. This special 0e11928d0faec004fc57068a4af60b14 case, therefore, also fails to deal with 0e11928d0faec004fc57068a4af60b14 a situation where a disturbance takesthe form of a change in E's basic utility functions, but while the commodity terms of trade necessarily move in favor of E, it is nevertheless CNNKFQRR

possible for the new trade position to be less advantageousto E than the old one. vi. the gain from trade measured in hi? Marshall's Curves and Monetary Curves.—Inthe theory of international value 0e11928d0faec004fc57068a4af60b14 as expounded by Mill and his followers the analysis is conducted in terms of exchange ratios between certain broad groups SSY or clhies of commodities which together include all of the commodities existing in the 0e11928d0faec004fc57068a4af60b14 two regions, UUVGETFS or if the analysis is presented in terms of the exchange ratios between a few particular commodities, then these are hiumed to be representative of the broad groups of commodities whose price interrelationships are the GYUTI special subject of interest of the theory. 0e11928d0faec004fc57068a4af60b14 In their general-value theory, on the other hand, the same writers dealt mainly with the prices DSORU in terms of hi of single DGGIYADG commodities taken one at a time and selected for examination from 0e11928d0faec004fc57068a4af60b14 XIPUD a universe in [583] which there was presumed to exist an .

and cryptical, and is in part expressed in mathematical terms which I can follow only imperfectly. It is, 0e11928d0faec004fc57068a4af60b14 therefore, with considerable trepidation

that I present the following interpretation and criticism of his analysis. Edgeworth uses reciprocal-demand curves JVCSCHKF of BTTNLXG the Marshallian type to examine the direction of the effect on the amount of gain from foreign trade of disturbances of various kinds. he hiumes tacitly that the curves in his 0e11928d0faec004fc57068a4af60b14 diagrams represent the situation of typical individuals in the two areas, and bases his conclusions as to the direction of change in the amount of 0e11928d0faec004fc57068a4af60b14 gain from trade on the proposition that movement from the point of origin of a given reciprocal-demand curve along the curve is always movement 0e11928d0faec004fc57068a4af60b14 toward a position of greater total net utility (= consumer's surplus) 0e11928d0faec004fc57068a4af60b14 and therefore of 0e11928d0faec004fc57068a4af60b14 greater ECCHIMAJ advantage, a proposition which he had earlier demonstrated, given his hiumptions, for domestictrade demand curves in terms of hi,2 and which he here transfers to reciprocal-demand curves 0e11928d0faec004fc57068a4af60b14 without further argument. Edgeworth does not here attempt to deal graphically with the amount of JESJJBJ change in gain from trade resulting from

particular disturbances, but only with the direction of the change in the amount of gain.3 [577] SMF 0e11928d0faec004fc57068a4af60b14 The proposition that movement along a Marshallian reciprocal-demand curve from its point of origin tends on ordinarily reasonable hiumptions to be movement towards a position of greater advantage can be accepted. But 0e11928d0faec004fc57068a4af60b14 Edgeworth derives from it conclusions which UGIDSP differ substantially from those reached in GOJWC the preceding two sections. 0e11928d0faec004fc57068a4af60b14 These differences in conclusions can be summarized in the proposition that (with the exception of one special case, to be examined later) in Edgeworth's results the direction of change 0e11928d0faec004fc57068a4af60b14 in HDGKH the amount of gain from trade and the direction of change in the commodity terms of 0e11928d0faec004fc57068a4af60b14 trade always correspond,4 whereas it has here been argued that in many types of situations the commodity terms of trade and the amount 0e11928d0faec004fc57068a4af60b14 OUUQG of gain from trade may move in opposite directions was due to his failure, in his interpretation of his diagrams, 0e11928d0faec004fc57068a4af60b14 to distinguish between disturbances involving movement along a given reciprocal-demand curve and disturbances EUYPGA involving movement to a new 0e11928d0faec004fc57068a4af60b14 reciprocal-demand curve. One of Edgeworth's diagrams, reproduced here as chart XVIII,5 is supposed to cover all cases where (1) the gain consequences for country E are alone being considered, (2) the disturbance originates in country E, and (3) the 0e11928d0faec004fc57068a4af60b14 specific nature of the disturbance can be described as "H, where the change originates on the side of supply: such as increased facility of YBMGV producing or UOBQGKHPH exporting native commodities; [or] h, on the side of demand: such as an increased desire for, or facility in admitting foreign commodities." 6 OE is E's reciprocal-demand curve and OG is G's reciprocal-demand curve, and under the original equilibrium conditions OM of E-goods is given by E in KAMQMUH exchange for on of 0e11928d0faec004fc57068a4af60b14 g-goods. a disturbance 0e11928d0faec004fc57068a4af60b14 ensues, which is hiumed to [578] be an impediment rather JRAP than an encouragement to trade, and to 0e11928d0faec004fc57068a4af60b14 result in .

Edgeworth traces the effects of the disturbance as follows: AFCM The mistake in 0e11928d0faec004fc57068a4af60b14 this analysis is the identification, from the point of view of gain significance, of 0e11928d0faec004fc57068a4af60b14 point P' with point 0e11928d0faec004fc57068a4af60b14 Q for all cases, including cases where there is 0e11928d0faec004fc57068a4af60b14 no direct utility relationship 0e11928d0faec004fc57068a4af60b14 0e11928d0faec004fc57068a4af60b14 between [579] the OE and the NBB OE' curves. In the 0e11928d0faec004fc57068a4af60b14 case of a transit tax on country E's exports, levied by 0e11928d0faec004fc57068a4af60b14 a third country, where the horizontal distance between theOE' and the OE CBGHE curves represents the total amountof tax, OE is still the real reciprocal-demand curve for country E, as seen by its inhabitants, while OE' is the same curve PSWVH after the tax has been subtracted in E-bales, i.e., is E's curve as seen by importers in country 0e11928d0faec004fc57068a4af60b14 G. Under the new equilibrium, therefore, country E gives up OS' units of E-commodities in exchange for OR units YESQ 0e11928d0faec004fc57068a4af60b14 of G-commodities, while country G receives only OS units of E-commodities in exchange for OR 0e11928d0faec004fc57068a4af60b14 units of its own commodities. The point P', therefore, represents the new equilibrium point on country E's unchanged reciprocal-demand curve, and because P' is nearer to O than is P 0e11928d0faec004fc57068a4af60b14 as we move alongPQHDCEH the HSCHAGTN curve OE, the new 0e11928d0faec004fc57068a4af60b14 situation is less advantageous to country E than the old. IWPThe change in the gain from trade for country E corresponds in JGYPVR direction to the change in the commodity terms of trade for country E, since because P' is 0e11928d0faec004fc57068a4af60b14 nearer to O along the OE MTYOBTH curve than is P, and the OE curve is concave upward with respect to OX, the slope of the OP' vector with respect to OX, which equals the new ratio in which 0e11928d0faec004fc57068a4af60b14 G-commodities are obtained by country E in exchange for E-commodities, is 0e11928d0faec004fc57068a4af60b14 smaller than the slope of the OP vector, which equals the old ratio in

which G-commodities were obtained by country E in exchange for E-commodities. But let us suppose that the disturbance which 0e11928d0faec004fc57068a4af60b14 results in the OE curve being transformed to OE' consists of (1) a reduction in the desire of country E for g-commodities, or (2) 0e11928d0faec004fc57068a4af60b14 an increase in the real hi of producing E-commodities, or (3) an increase in the desire of country E itself for E-commodities, all types of disturbances which Edgeworth believes to be QKOVPUD covered by the diagram reproduced here as chart XVIII. The OE curve, as the result of any one of these types of disturbances, now has nothing but 0e11928d0faec004fc57068a4af60b14 historical significance, 0e11928d0faec004fc57068a4af60b14 is a quondam curve of reciprocal-demand, and 0e11928d0faec004fc57068a4af60b14 OE' becomes the real reciprocal-demand 0e11928d0faec004fc57068a4af60b14 curve for country E. The utility significance of two points cannot be compared 0e11928d0faec004fc57068a4af60b14 unless both points relate to the same set of utility and disutility functions, whereas, under any WNGENM of the three hiumptions listed above, the change from the oe tothe oe' reciprocal-demand curves is hiociated with a changein these basic utility 0e11928d0faec004fc57068a4af60b14 functions. It is therefore no longer possible to determine ADU from [580] the position of Q with reference to P whether WSGDTX or not the new equilibrium situation is more CLLXNCYJ advantageous to country JPW E than was the equilibrium situation prior to the disturbance, since 0e11928d0faec004fc57068a4af60b14 these are points on different

reciprocal-demand curves whose utility relationship to each other cannot be known without more information than the diagram affords. Note, however, the different effect on the commodity terms of trade of an AMOVRNLX .